Tax on savings interest: Do you pay tax on savings in the UK?
11th April 2025
Reviewed by RIFT's Head of Operations, Ryan Carman ATT
Reviewed by Ryan Carman ATT Ryan Carman ATT LinkedIn
Ryan is the Head of Operations at RIFT Group, where he’s been making an impact for over 12 years. Whether he’s refining processes, leading strategic initiatives or fostering a collaborative environ...
Read More about Ryan Carman ATTWhen it comes to growing your savings, the last thing you want is an unexpected tax bill eating into your hard-earned interest. But how does tax on savings interest in the UK work?
The good news is that many people don’t pay tax on their savings interest at all, thanks to allowances like the Personal Savings Allowance (PSA). However, if you earn above a certain threshold, you may need to hand over some of your interest earnings to HMRC. Let’s break it all down so you can understand what you owe (if anything), and how to keep more of your savings.
Do you pay tax on savings interest?
The short answer? It depends on how much interest you earn and what tax band you fall into.
Interest earned on savings is considered taxable income and may be subject to savings tax in the UK. But before you panic, the government offers allowances that mean most savers won’t actually pay tax on their interest. If your savings don’t bring in huge amounts of interest, there’s a good chance you don’t need to worry about tax at all.
What is the Personal Savings Allowance?
The Personal Savings Allowance (PSA) is the amount of savings interest you can earn tax-free each year. Your allowance depends on your income band.
- Basic rate taxpayers (20%) – Can earn up to £1,000 in savings interest tax-free.
- Higher rate taxpayers (40%) – Can earn up to £500 tax-free.
- Additional rate taxpayers (45%) – Get no tax-free savings allowance.
If your savings interest stays within your PSA, you don’t need to pay anything to HMRC. If you do go over it however, you’ll need to pay the excess.
When do you need to pay tax?
If you earn more interest than your PSA allows, you’ll need to pay tax on the extra amount. Here are the main cases where savings interest might be taxed:
High earners
If your annual income puts you in the higher rate (40%) or additional rate (45%) tax bracket, your PSA is lower or non-existent, meaning you’re more likely to owe tax on your savings interest.
Other exemptions
Not all interest is taxable. The following types of savings don’t count towards your taxable interest:
- ISAs (Individual Savings Accounts) – Interest earned in an ISA is always tax-free.
- Premium bonds – Any winnings from Premium Bonds are tax-free.
- Some National Savings & Investments (NS&I) products – Certain NS&I accounts offer tax-free interest.
How to report and pay tax on savings
If you do owe tax on interest, you won’t necessarily need to do anything yourself – HMRC may collect it automatically.
PAYE (for employees and pensioners)
If you’re employed or receive a pension, HMRC usually adjusts your tax code to collect any tax due on savings interest. This means it’s deducted before from your wages or pension before you receive it.
Self-Assessment (for high earners and self-employed)
If you’re self-employed or earn a lot of interest outside your PSA, you might need to complete a Self-Assessment Tax Return and declare your savings income.
Direct payment to HMRC
If you don’t file a Self-Assessment but owe tax on savings, HMRC might send you a Simple Assessment – a tax bill that you need to pay directly.
Tips for minimising tax on savings
Nobody likes paying more tax than they have to. Here are a few smart ways to keep your savings tax-free:
Open an ISA
A cash ISA or stocks and shares ISA lets you earn interest or investment returns tax-free – no matter how much you earn.
Use your allowances wisely
If you’re close to exceeding your PSA, consider spreading savings across partners of family members to make the most of multiple allowances.
Consider NS&I products
Some savings accounts, such as NS&I Premium Bonds offer tax-free interest or prizes.
Stay on top of your tax with RIFT
So, do you pay tax on savings? For most people, thanks to the PSA, the answer is no. But if you’re a high earner or your savings generate a lot of interest, you could owe HMRC some tax. The key is knowing your limits and making use of tax-free saving options like ISAs.
If you’re unsure whether you owe tax on savings interest or need help filing a tax return, RIFT Refunds can help. Get in touch today and let’s make sure you’re not paying more tax than you should.